Hard-to-reach places drive miners to bet big on renewable energy

Contrary to their tarnished image, mining companies are investing in renewable energy faster than other industries and will account for 1.8 percent of global clean-power spending this year.

Louise Downing&nbsp|&nbsp9 December 2012&nbsp16:19

The four windmills dug into northern Canada’s tundra that power Rio Tinto Group’s $5.2 billion Diavik diamond mine are the world’s first designed to work in gusts as cold as 40 degrees below zero.

The mining company has sunk $30 million into wind energy because roads are frozen and closed to diesel fuel deliveries for 10 months a year. Near the opposite pole, in Argentina, Barrick Gold Corp. is testing the highest wind turbine at 4,100 meters (13,450 feet), an altitude almost halfway up Mt. Everest. The machine was designed for low air density and provides 20 percent of a Barrick gold mine’s power on windy days.

“All the big mining companies are studying different types of renewables,” Gil Forer, Ernst & Young LLP’s clean-tech head in New York, said in an interview. They are “very strategic” for an energy-intensive industry, he said.

Gold and diamonds often are found where no power cables exist, particularly at the planet’s extremes where winds are stronger. Mining companies are investing in renewable energy faster than other industries and will account for 1.8 percent of global clean-power spending this year, double the 0.9 percent rate in 2010, according to data compiled by Ernst & Young and Bloomberg. At the same time, they’re risking more production on weather, as cloud cover and still days can kill power supply.

The companies say it’s mostly driven by costs. Still, the gamble can improve a corporate image tarnished over decades by worker accidents, fouled rivers and toxic tailings in an industry that extracts gems and metals formed over millions of years.

‘Convincing Trend’

“What makes this trend much more convincing is that it’s not a broader altruistic corporate motive” driving investment, said John Drexhage, climate change director at the International Council on Mining and Metals, whose 22 members include Anglo American Plc, BHP Billiton Ltd. and Barrick. Instead, it’s regulatory pressures “and also the simple bottom line that renewables are helping to actually work as an effective means of helping to cut down both exposure and costs.”

Clean power provides about a third of the energy consumed by London-based Rio Tinto, the world’s second-biggest mining company. Rio, like most competitors, backs up the projects with fossil-fuel generation for when winds die and skies cloud over.

Anglo American, which owns 85 percent of De Beers, the biggest diamond producer, invested about $180 million in low- carbon technologies and gets 23 percent of its energy from clean sources. Newmont Mining Corp., having spent about $171 million on hydropower, biodiesel and geothermal power in 2011, uses clean energy at 10 of its 14 mines, spokesman Omar Jabara said.

Grizzlies, Wolves

Explorers will invest about $5 billion in remote alternative-power projects this year and at least $8.4 billion by 2016, compared with $1.88 billion in 2010, Ernst & Young estimated, based on Pike Research data.

Rio Tinto’s Diavik mine, estimated to hold 60 million carats of diamonds, lies 220 kilometers (137 miles) south of the Arctic Circle in land that’s home to grizzly bears and wolves. Using wind energy there has cut its diesel use 10 percent and the number of tanker trucks braving frozen lakes and ponds by 100 a year, company spokesman David Outhwaite said. The economic payback time is about eight years, he said.

Energy used for crushing, grinding and hauling ores is usually one of the top three operating costs for mines, according to Mike Elliott, global mining and metals leader at Ernst & Young. For gold mines such as those controlled by Barrick and Goldcorp Inc., it could be the largest single expense, he said.

Enter Solar

Barrick last year got about 14 percent of its electricity from low-carbon sources. Energy accounts for about a quarter of its operating costs. The company owns a solar farm in Nevada and a 20-megawatt wind park in Chile that cost $50 million to build and provides enough energy to supply 10,000 homes. It’s also introducing solar panels at its mine facilities to power kitchens and other camp amenities.

“Competition for secure energy in areas where there is a rising standard of living in the population and therefore rising energy demand, means mining companies may find they aren’t able to access energy,” Elliott said. “In these situations they would be looking at a partial or fully self-sufficient energy supply from renewables.” Remote mines also provide the biggest opportunity for clean power, he said.

Countries such as South Africa and Chile, where energy grids are stretched to the limit, lend themselves to look at other options, Drexhage said. In the Republic of Congo, one of the largest diamond-producing countries, and in the Canadian Arctic where Rio operates as well as BHP and De Beers, diesel is relatively expensive, so biofuels are being considered.

Making Biodiesel

Anglo American, Newmont and Barrick are investigating the potential of cleaner fuel. Anglo owns a minority stake in MBD Energy Ltd., an Australian company developing technology that uses algae to absorb flue gases from power stations to make products such as biofuel. Newmont uses biodiesel at its mines in Peru and to run its trucks and cut costs in Nevada. Barrick is experimenting with biodiesel in Africa and South America.

Newmont’s projects in Ghana are almost exclusively powered from hydroelectric facilities that are more cost-effective than gas-fired or diesel plants. For Anglo, hydro is a “major” part of its electricity mix in Brazil, where more than 80 percent of the power used at its operations comes from renewable sources. The company has also replaced charcoal with woodchips to account for 30 percent of its energy use at the Codemin plant in Brazil.

Total’s SunPower

As the costs of solar energy come down, large mines present one of the biggest opportunities for solar-panel makers because they use diesel generators on-site, said Tom Werner, president and chief executive officer of SunPower Corp. It’s just the beginning of a market for the solar-panel maker majority owned by Total SA, which expects close to 100 megawatts a year of demand once the market ramps up, he said.

Rio Tinto has installed 20 solar-power plants across the world to study their potential, and Newmont is looking “very seriously” at using solar to cut costs and power its mines in the remote Australian desert. Goldcorp too is working on a feasibility study for a solar project in Nevada.

As much as 5 percent to 10 percent of SunPower’s business in the future could be for off-grid mine applications, Werner said. It’s technologically low risk and may be the “Trojan horse” for larger developments in countries where solar isn’t yet being used, he said.

While Rio Tinto hasn’t made direct investments in clean technology makers, it said it had a role to play in building a low-carbon infrastructure. The iron it mines is used in the production of wind turbines, and borates, a mineral mined in California, Europe and China, is used in turbine blades.

“The demand for natural resources is growing across the world so we need to develop new mines and be more efficient with existing mines, and future energy is one of the key issues,” Ernst & Young’s Forer said.